BEIJING, Dec 16 (Reuters) - Zhou Xiaochuan, head of China's central bank, offered a rare elaboration late on Wednesday of his views on a range of issues from global currency reform to inflation and hot money.
His comments, made in a university lecture and obtained by Reuters, were largely academic but help shed light on policy thinking in the world's second-largest economy.
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Here are some highlights translated from his talk, along with relevant background.
ON EXCESS LIQUIDITY AND INFLATION
* Background:
Analysts say that excess cash in the Chinese economy from hefty trade inflows and a lending surge during the global financial crisis is one of the root causes of inflation's 5.1 percent jump in the year to November, a 28-month high.
* Zhou's view:
He said it was inappropriate to directly compare China's money supply with that in the United States, because China has a much higher savings rate and the United States has more direct financing.
"What is the measure for whether money supply is appropriate? The answer is very clear in modern monetary theory. It is largely the core consumer price index (CPI)."
"Why is the core CPI used? Because there are many other prices that have little relationship with money, such as the import prices of commodity prices and price changes caused by weather or other reasons."
He said fast money growth during the global financial crisis had been necessary and any fallout could be dealt with.
"There will definitely be some over-shooting, but the key is that you make adjustments in a timely manner when you spot the turning point so that the over-shooting won't be serious."
"We started to tighten liquidity long before CPI hit 5.1 percent. We have raised banks' required reserves six times this year. We paused in the middle of the year because of the debt crisis in Europe."
ON MANAGING CAPITAL INFLOWS
* Background:
Zhou said last month that China can create "pools" to lock up capital inflows, leaving the market to speculate about his meaning. He expanded on the idea in his lecture.
* Zhou's view:
"A typical pool would be foreign exchange reserves. But reserves are in fact composed of many parts, and each part can be viewed as a pool as well."
"Some pools can cover trade payments. Some pools are reserves for the future remittance of profits by foreign companies. They have made a lot of investments in China and will someday take profits out."
"And one pool is for hot money. As long as you get into the pool, I can sterilise 100 percent of the liquidity, so you won't have any negative impacts on the real economy."
"We have to look at the sources of liquidity. If the growth in liquidity comes from a rising trade surplus, foreign capital inflows or foreign direct investments, you know we have to enhance the sterilisation efforts."
"Even without strong inflation pressure, we should still step up sterilisation... and use the tool (reserve requirements), which should play its role."
HIS PROPOSAL FOR A SUPER-SOVEREIGN CURRENCY
* Background:
In March 2009, Zhou suggested that a beefed-up Special Drawing Rights (SDR), the International Monetary Fund's unit of account, could displace the dollar as the world's main reserve currency.
"You can view this as a suggestion or an idea.
"Reserve currency (issuing countries) may have a conflict between their domestic policies and international responsibilities, so the idea emerged that whether there should be a super-sovereign currency.
"You may think it a quite theoretical issue or a very remote thing, but the background was quite real."
"After the breakout of the financial crisis, and we all know the crisis happened on Wall Street, some people tried to blame others for their own mistakes and tried to shirk their responsibilities.
"In particular, at the end of 2008 and the start of 2009, there was much noise that China was the source of the financial crisis, that China's trade surplus had caused a global imbalance.
"We find that ridiculous. It's your property bubble, your subprime loans, your lax regulation and your business models. How can you blame others for all the problems?
"I don't think any Chinese person will accept that (blame)."
"To a large extent, the initial discussion of a (super-sovereign currency) relates to analysis of the reasons for the financial crisis and the share of responsibilities.
"It won't do any good to just exchange a few words. We have to present the issues in an analytical way.
"However, we do want to discuss what the future international monetary system should look like. It may be remote, but there should be some kind of blueprint." (Reporting by Beijing newsroom; Editing by Ken Wills)